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Many
thanks to foreign funds
They're still paying top
dollar for property but will their bet on a recovery pay off?
The property market should warmly welcome
'foreign talent' to Singapore. After all, foreign funds are the only ones
now buying properties at a high price.
Early this month, the IP Property Fund,
jointly owned by the Dutch company ING Real Estate and local heavyweight
CapitaLand, bought 22 apartments under construction at 11 Amber Road from
the developer, the Tao family that used to control Singapore Land.
The project has only 40 units. Including
the 22 bought by IP Fund, the Tao family has sold around 30 units so far.
Completion is scheduled for March 2004 at the latest.
IP Fund has paid just below $700 per sq
ft, which is considered somewhat high in today's market where the rare bulk
buyer can literally dictate prices.
To justify the risk and the expenses, IP
Fund needs to sell the apartments at no less than $770 psf. Talk is, it
usually looks to exit an investment in three to four years.
This could be difficult. The entire east
coast, from Marine Parade to Katong/Amber Road to Tanjong Rhu, is chock-full
of condominiums and apartments going a-begging for buyers.
Just down the road, the highly popular
Cote d'Azur, with 614 units, changed hands at below $600 psf. Many Cote
d'Azur buyers are likely to put their properties on the resale market (at
$650 psf) at the same time that IP Fund is selling 11 Amber Road.
Cote d'Azur may be leasehold while 11
Amber Road is freehold, but it boasts an unrivalled seaview. With this and
the huge price differential, IP Fund will have a hard time finding enough
buyers for its properties.
Perhaps this is why the fund has quietly
asked agents to put up a few units there for sale for tiny profits, hardly a
month after it had bought the properties.
IP is not the only one buying high. The
biggest bullish purchase by a foreign fund took place in 1995, when
Prudential Assurance Co Singapore bought one-third of the (later named)
Prudential Tower just outside of Raffles Place for $183 million, or $2,180
psf. Today, office space there is going for $1,200 psf at best.
Four years later, in 1999, GRA Singapore,
the Asian real estate fund management arm of the Prudential Insurance
Company of America (not connected to Prudential Assurance of the United
Kingdom), bought 33 condos in CapitaLand's upmarket Avalon at $1,450 psf.
Two years later, IP Fund bought 20 units
there at $1,280 psf. Even assuming prices have stabilised, GRA is already
making a paper loss of an average of $170 psf.
GRA's woes do not stop at Avalon. It was
reported yesterday that India International Insurance bought two high floors
of the freehold John Hancock Tower at Raffles Quay for $18.8 million, or
around $930 psf. Last June, a fund managed by GRA bought three higher floors
at $36.5 million, or $1,200 psf. Paper loss on that purchase, even taking
into consideration the minimal height difference, is about $260 psf or $8
million.
Why do foreign funds rush in where local
buyers fear to tread? The answer is that these funds probably take a much
more optimistic view than local buyers, and that a fund set up to invest in
property must, in the end, invest.
Singapore is now poised at a crossroads -
it could go into recession/deflation, or it can recover nicely in a year or
two. A few foreign funds are betting on the latter and have gone into the
market to 'buy cheap'. This is good news for developers, though they must be
hoping there are more of such funds in Singapore today.
- By Lee Han Shih Singapore
Business Times 10 Dec 2002
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